Why did Warren Buffett sell his airline stocks?
Stock Market Analysis

4 Airline Stocks To Watch Amid Vaccine News

The airline industry is holding out hope that one of the recent vaccine developments will prove successful. But what will a vaccine mean for airline stocks? 

As pharmaceutical companies around the world make strides in the fight against COVID-19, we may still have a considerable amount of time left before we’re sitting on an airplane again. In the meantime, let’s see what airline stocks we should be watching.

Recent vaccine developments 

Pfizer and BioNtech announced a vaccine this month that claimed it prevented 90% of candidates’ COVID-19 symptoms. The pharmaceutical company said that 50 million vaccines will be made by the end of 2020. The good news? Pfizer’s vaccine has already been tested on 43,000 participants with no safety concerns reported as of yet. 

The Moderna vaccine is similar to Pfizer’s but claims to be easier to store. It is said to protect 94% of people from developing symptoms. Moderna said it will have 20 million doses ready by the end of the year and 30,000 volunteers have been involved in its trials. 

Not one to be outshone, Oxford has also reported its vaccine has an average efficacy rate of 70%. Further data shows that perfecting the dose could increase protection of up to 90%. The U.K has ordered 100 million doses upon 200,000 successful trials. A key benefit of this vaccine is that it does not need to be refrigerated at extremely cold temperatures, unlike Pfizer and Moderna’s versions.

How are airline stocks performing in 2020 

It was a wild week on Wall Street when positive vaccine news was announced by some of the biggest players in the pharmaceutical industry. Stay-at-home stocks suffered whilst the overall economy received a much-needed boost. 

Back in March, Warren Buffett stated he had sold all of Berkshire Hathaway’s shares in airlines but was he right, has the airline business been changed forever by coronavirus? Even after the positive vaccine news was announced, Bill Gates declared that business travel will still be down 50% in a post-pandemic world due to remote working remaining popular. One thing is for certain when the public can travel again for leisure they will in their masses. This will hopefully result in airline companies receiving a much-needed boost. 

American Airlines, unfortunately, had a terrible 2020, considering they were arguably the strongest of the major airlines in the U.S. The airline got into billions of dollars of debt by spending their available cash on stock buybacks worth $12.5 billion between 2010 and 2019. This meant that when COVID-19 hit, the company had no available cash to see it through the lockdown resulting in American Airlines needing to borrow money.

CEO Dough Parker mistakenly believed that the industry had overcome its previous problems and stated back in 2017: “I don’t think we’re ever going to lose money again”, resulting in American Airlines going into the pandemic with the most debt out of all the major airlines and having to dilute shares to raise cash. Since the start of the year, American Airlines stock is down around 50%. 

United Airlines seems to be in a better financial position than American Airlines, but a much more insecure position than Delta Airlines. This situation has resulted in American Airlines being the most interesting out of the big airline companies as investors have the potential to pick up cheaper stock, whilst not having to invest in the riskiest of the airlines. Shares of UAL were worth about $90 pre-pandemic, but have since lost $30 from negative earnings. Since the beginning of 2020, its stock has fallen over 50%.

Delta Airlines entered 2020 in the best financial position out of the big airline carriers, as its losses have been relatively smaller compared to other major airlines. This has given it lots of flexibility in dealing with the pandemic. Delta has tried to limit financial disaster as much as possible by focusing on cutting costs and boosting liquidity. This has resulted in the airline not having to dilute stock or sell assets like American Airlines as their losses have been much smaller. DAL stock is down around 30% from where it was trading at before the pandemic hit. Analysts predict that when travel resumes to somewhat normal, the stock should rise 25% over the next few months. Investors who are looking to add airline stocks to their portfolios would be hard-pressed to do better than the airline that is considered the industry’s best carrier.

Hawaiian Airlines may not be the most well-known carrier on this list, but its stock made the biggest gain in the industry the day Pfizer announced its vaccine news, up 50%. The stock’s ability to jump by that much really proves the risk and opportunity available in the airline sector at the moment. The company depends heavily on tourism to Hawaii, which fell almost 99% in Q2 of this year. On a positive note, the country has already lifted the 14-day quarantine rule for travelers arriving on the island. Hawaiian Airlines also managed to retain $979 million in cash as of its last earnings report, meaning it should have enough funds to last until tourism picks up when a vaccine is administered. Hawaiian Airlines shares have fallen 29% since January.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here

Nicole Byrne
Nicole is a writer here at MyWallSt. Her favorite stock is Etsy because she loves its original and handmade items. She believes people are going to stop buying mass-produced items and start purchasing ‘one of a kind’ fashions and furnishings. In a world of sameness, Etsy has the advantage.